Technology and the Changing Future of Investing

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- Welcome, welcome one on all. We welcome you to the technology and the changing future of investing. And first and foremost, we've got a big thank you to our sponsor of today. You just saw a short video about them, and it is of course Broadridge who brings us this today. I myself am Caroline Hyde. I'm fortunate enough to be a TV anchor for Bloomberg, and I urge you of course, to get stuck into some of the extra materials that you find through this virtual conference. Get into the handouts tab in the Q&A window, and you'll be able to read more about Broadridge, and in fact how they're basically taking the pulse of financial services and the people that lead them at this very moment. Go into the Broadridge next gen technology pulse survey. Get a feeling for where financial companies are going, how they're embracing technology amid this, I mean, we use the word too much, unprecedented time amid the pandemic. And you can hear about what they're doing in terms of AI, blockchain, the cloud and further and foremost. Now, we also know we're about to talk about technology and what does that mean? Well, cue technological issues, of course. Sometimes there might be an issue with this virtual conferencing kind of malarkey, and we want to ensure that it's smooth for you. So please be ensured that you, if you experience any difficulty, any difficulty at all during the broadcast, please just refresh your browser. We find that helps the most. Also, get involved. Use your technology at your fingertips. Type out questions. Send them to us, get involved in the Q&A yourself. Tell us who you are. And indeed, we'll give you a shout out, your name your location, and indeed your question for our panelists. And follow us on social media. Of course, were there. We're @BloombergLive. Use the hashtag #TheFutureOf. Now, let's get first to our key panel that we're about to kick off with. Technology and the changing future of investing. We're gonna go deep into the future of finance, engaging with the top minds in terms of how they're using technology to drive forward. Hopefully, some silver linings to these clouds amid the pandemic. Tim Gokey is with us. Of course, the CEO of Broadridge. We thank you, sir, of course, being the sponsor of this event. And Tom Naratil. He's the Head of Global Wealth Management and President of UBS Americas for UBS. Gentlemen, welcome.

- Thank you.

- Now, we talk too much probably about the unprecedented time in which we now live, and there have been significant challenges. This is first and foremost, a health crisis. It's also now an economic crisis, and it is a moment of reckoning when it comes to social injustice. But amid these dark, dark clouds of COVID, there are these silver linings. I mean, Tim, you've seen uptake in some of your solutions, go through the roof. People needing the sort of platforms and technological advances that you offer. Tom, I know that you've seen profits move up double digits because people need clarity, advice, when it comes to what they do with their wealth and going forward. So talk to me first, Tim, if you can, about what is one of the like, the key lesson you think you've learned coming from March to now amid this pandemic that you faced within your business?

- Yes, absolutely. And Caroline, thank you very much for having us. Great to be here with you and Tom also with you. I think that we're really seeing the pandemic accelerating changes that were already underway. Prior to the pandemic, our clients were already seeing their business models needing to evolve, needing to change. And next generation technologies like AI, blockchain, cloud and digital that you referred to that we call the ABCDs are part of that change. And post-pandemic, that is happening even faster. We see that in our client conversations. The biggest things we're hearing is client seeking next generation mutualization, resiliency and digital transformation. To get a sense of that beyond our own experience, we surveyed 500 C-suite executives. I think you referred to that from global financial institutions. 70% said that digitization is making the biggest difference for them or half are planning to accelerate their next generation technology investments. And 72% said that leveraging third party technology is more important than ever. So to address these needs, we are significantly upping our investment on our own people, products and platforms across investing in governance and communications. We had about a dozen major launches over the next 24 months. And the core theme of these is to really be the on-ramp to next generation technology for our clients. And we do that by helping them with imagery solutions for critical, but non-differentiating functions. And really let them share talent and cost of innovation so they can focus their own scarce resources and what makes them truly unique.

- And making themselves truly unique. Talk to us about how you've managed to do that at UBS, Tom. How you used, I know you work very closely with Broadridge, You've been really tackling the lack of certainty among your clients right now. What have you seen as the key change in this moment of the pandemic and the way people use your wealth management services?

- Well, I like the way that Tim talked about acceleration of change, because that really is what we've seen. But it's around this desire, certainly in a crisis like this in a wealth management business, there's a desire on the part of our clients for engagement. They want the contact. They want to speak with their advisor more frequently than they have in the past. And they're using new tools to be able to do that. So the advance that we've seen in terms of utilization of digital technology and the way that they engage with us, whether it's engaging with their advisor in terms of a conversation, let's say like this, over video. Whether it's the way they engage with content like research. Whether it's the way that they utilize digital tools to be able to handle some of the transactional activity that they have in terms of mobile check deposits and remote deposit capture, for example. all the utilization of those tools have spiked up during this crisis and the way we'd frame it. We think that in a small short period of two to five months, we probably saw two to five years of increased technology adoption. And that puts us in a great place to be able to serve our clients even better going forward.

- A great place, because I hear time and time again, people feel that technology is gonna be the end of jobs. We're gonna do ourselves out of roles. I mean, I've seen augmented reality versions of news presenters, for example. I hope they're not too good quite yet, but the future's coming, Tom, when people say to you, "Look, technology is going to be the end of wealth management." What do you say?

- Definitely not. I've been doing this for 37 years, and I've heard that throughout my entire career about technology will replace the advisor. And you might draw that conclusion if you don't understand the business that you're actually in. We're in the business in wealth management of the product that we sell as selling a relationship with an advisor. So technology is what enables a relationship with a client to become more rich, to become more vibrant, to become easier for the client to access that advisor and the tools and the content that we have available to them. So I would say for all the financial advisors out there, embrace technology. It's what's gonna make your relationship with your client even more rich.

- Tim, where has been most embraced, amid what you're currently offering. Particularly within where you work with UBS, for example.

- Yeah, I do think that we're not seeing any slow down in anything we're doing with the clients and that acceleration we're seeing really, we saw in our last quarter a record newly contracted engagements, and we're seeing really good productivity in terms of all the tech builds of transformation that we're working on with clients. We are seeing a lot of co-creation with clients, where they see a new problem and they wanna share the burden of change. And the reasons for that can be varied. They may not have all the PIP, the initial cost may be high. They may wanna share the ongoing burden of keeping a solution up to date. And as you said, a great example of that is the work that we're doing with UBS. We are working together to create a next generation mutualized wealth platform that will digitize client advisor and back office experiences. And it's all built on a modern multi-currency platform with full market connectivity in a very open data layer, that enables a whole set of applications on top, several of which we've provided by us, some by UBS, some by third parties. And so for UBS, it includes a new advisor workstation, a better advisory experience, full automation from the advisor and branch through to the back office. But the key point of this is the flexibility of the new architecture, which wasn't available even five years ago. There are lots of models in wealth management. So no platform is going to serve everyone well but by creating a really open core platform, leveraging an enterprise services integration layer which is a mouthful in itself, it really allows you very seamless tailoring to different wealth management platforms.

- Tim, it's interesting that you say the platform that you're currently developing wasn't available five years ago, and just previously you said that basically in the last two to five months, you've seen the acceleration of technology and adoption of technology accelerate by two to five years. How have you kept up with that sort of pace of change and how do you ensure that you're continuing to evolve and meet the mark with the acceleration for needs? How sustainable is that trend that we're seeing post-pandemic?

- Well, I do think that in terms of that acceleration, I think in many cases it is adoption of existing tools versus just pure creation of new tools, 'cause you can't create new tools that fast. Turning to really sort of almost a different area, when you think about the governance, you and I, Caroline, have talked about this before. We had focused on virtual shareholder meetings, we created a product to do that 10 years ago. We gradually got it up to 300 annual meetings, annual shareholder meetings last year. And this year we have done more than five times that many. And that continues. So that's an example of an existing tool that is then accelerating. And of course, talked about the new things we're gonna do.

- Tom, when you said about the new adoption, the way in which people have been wanting, your clients have been wanting to interact that much more with their advisors. Do you think that's sticky? Do you think post-pandemic, and we wish it away now but of course we're probably living with it until mid 2021, but will the ways in which you now interact with your clients remain after the pandemic?

- Absolutely. We definitely, definitely believe that Caroline, because there's a huge demand for content for understanding. And if we think about, our clients are spending more of their days sitting in front of a screen doing either their work, communicating with their families. And as a result, they're more engaged with digital content than they ever have before. And we certainly see that continuing on a sustainable basis because it comes down to the client doing what's convenient for them. And ultimately, if we're figuring out how to make it very convenient, they're going to continue the utilization. I would like to maybe turn that a little bit too away from the client. Think about the advisors because as Tim was talking about all the work that we're doing together on the wealth management utility with Broadridge, I think it's addressing so many different use cases for us in terms of things that are out there. Whether it's mutualization of regulatory spend. Whether it's looking at replacing a quarterback office system to ensure that you've got the cleanest data to use in data science going forward. Whether it's thinking about how we use AI to help to make our people more effective and more efficient at what they do and more relevant to the clients that they have. When we think about what is inevitably gonna be a consequence of certainly Fed policy as a result of the pandemic. The Fed keeping interest rates lower for longer makes it a lot harder for those of us who're in net interest income businesses. So as a result, we're forced to think about the operating cost side of things and how we can become more efficient at what we do. And that's certainly what Tim and his team are working to build for us in the industry, through the wealth management utility.

- Yeah, Tim, because you've got such a bird's eye perspective of how to ensure this is good, not only for the individual client, but also can be broadened out to an industry-wide solution. What are people asking for you at the moment most? Is it about ensuring that they have more time? Is it about cost efficiency? What is it that your clients are needing to ensure that they can tackle this pandemic head on?

- No, I think they are really keying in on what Tom talked about in terms of this theme of digitization. And there are so many different aspects to that. It's how the firm works. It's how the advisor works. It's how we interact with the client. And I think all providers are really seeking new ways to sort of lean into that, and in terms of how we work and how we engage with clients and we're investing on both sides of those. I want to focus for a second on that engaging with clients. And, you know, there is an interesting one 'cause a lot of them were coming to us around this topic, which is, the truth of the matter is that firms invest tremendously in a whole array of outbound communications, many of which are paper-based today. And digitizing those communications is clearly the way forward. This is one where there's a great opportunity to have it both ways to increase client engagement and to save money at the same time. And to make this practical, we think, institutions can take a three-prong approach, which is, you know, start by modernizing and integrating their digital communications infrastructure. Too many firms have multiple archiving composition preference management, e-delivery solutions, and modernizing those into a single cloud-based platform can save money but more important, enable a much more integrated conversation with their client. Second, there is a whole piece around optimizing the flow of paper. And there are a variety of techniques to do that, where they can produce in real savings. And then third and most important is to further drive down paper, but drive up engagement by offering truly next generation experience where the firm can project visual clickable content directly into your client's email. They can create a truly digital experience, a modern experience that can lead directly to action. And I think this is the kind of thing that clients are coming to expect. And then over time, we think will be table stakes.

- Tom, can you give us some examples of how that's worked in the real time for you? I'm sure there's ways in which your wealth managers are able to take cues from social media to be able to ensure that they're keeping up with certain life events. How are you seeing this being used in practical terms?

- When you think about it, a really basic client use case that we're working on right now, and I'm sure we've all experienced this. There are multiple platforms that different companies use as their corporate solution for video conferencing or videoing. And I know, for each one of us, we get a list of instructions for each call that we have to think about how are we getting in or to this particular version or not. So one of the things that we found is how can we make that easy for clients based on what they've told us. We're gonna build that video application right into our regular client to app that they would use for bill payment, remote deposit capture to check on their accounts. Why? Because it makes it easier for them. And I think this concept of my advisor is always in my device that I'm carrying around with me, it's the omnipresent advisor, always there to help me and my family. That's just really a fantastic use case for us to develop a solution for the client base.

- And Tom you've talked not just about the client interaction side and also how this helps your advisors. But, I mean, you're a man who's not just head of wealth management but you are head of UBS Americas. How are you seeing this sort of technology that Tim speaks so eloquently about? About the ABCs, the, the AI, the blockchain, the cloud. How are you seeing that impact other of UBS's business?

- Well, it's the ongoing discussion in every single one of our businesses. Is, it's not about where are we developing technology? It's about how much technology we're developing and can we actually handle all the change that we're putting through. And one time, if I think about our investment banking team, some of the things that we're utilizing in our wealth management applications and the development of the workstation on the AI pieces have actually come from the technology development that our evidence lab team did, and our research team did in the investment bank in terms of whether it's smart emailing, smart scheduling, smart calling to clients to make sure you're making relevant calls to those clients. So in a way, doing the data mining on where did your clients spend a lot of time? Where were they interested and how do you make sure that you don't waste their time with things that they're not interested in? And that you're very targeted in terms of what you direct to them. Second, obviously, I think whether you look at asset management or investment banking, it really is gonna be about the efficiencies and the efficacy of your order handling, your order routing, your order execution capabilities. And that's gonna continue to be the arms race in investment banking as they serve their asset management clients. And maybe the third piece. And I think we'll see this certainly in the asset and wealth management businesses, is gonna be around technology that can help to deliver both education, screening, performance and validation around the whole topic of sustainable investing. We as an industry have to make sure it's just not a marketing buzzword, that we're able to deliver exactly what we tell clients that we're doing, and that we can report on that and show them exactly what we're doing in a very transparent way. And I think that the technology developments that take that from what is a pretty simplistic approach for the industry as a whole today, into something that's a lot more meaningful, relevant and effective for clients in the future is probably gonna be a very big development for asset and wealth management going forward.

- That almost has been one of the silver linings to a certain extent of the investment community of this dark cloud of a pandemic. We look to the E, the S in particular, the social and the sustainable part of investing. Tim, is this something you're seeing reflected? The demands of technology? How do you help with the measurement? How do you help with the... Across the capital markets as well, not just in wealth management.

- Yeah, I think just a couple of examples of how these technologies are affecting the other aspects, capital markets, asset management. First, AI, very big thing. Tom mentioned it. I mean, one we're very excited about is applying AI to fixed income. We're gonna hear about that in the second half, but liquidity and fixed income, it's a huge issue. The number of CUSIPs is almost infinite and the future of fixed income trading is clearly using AI to find the natural counterparties for a given trade and then to aggregate demand so that electronically, they can go beyond the small lot size, whereas focused today. And broker dealers need to be in the center of that. We're working with more than 50 dealers and buy-side participants to really reimagine this. And that's, I think something we're very excited about. Another one, applying digital ledger technology to repurchase agreements. Repos are the cornerstone of how capital markets players finance themselves with literally trillions of dollars selling every day. And a lot of that activity is actually between entities within the same institution. And with DLT, securities can be mobilized to the custodian, tokenized and moved between entities with virtually no cost or risk. So I think that's just a couple of examples of how applying these technologies can really make a difference in capital markets and investment management. I think another area is global. And when you think about the unique challenges faced by global institutions, typically the technology has developed by asset class, by region, leaving them with a very complex operating model, multiple books and records that creates additional risk, it traps capital. And so the idea of bringing that together in one global system, one global asset servicing platform that can really make a big difference for the global firms and certainly something that we're seeing as well.

- Tim, you put it so eloquently. Finally, how blockchain is being put to work. It's something we talk about so much to actually hear how it's effectively being used in something as, well, newsworthy is the repo market and all the issues that we saw at the end of 2019 is really focused and phenomenal. And also, Tim, your perspective there on globalization. Sort of talking about needing to break down the barriers. We talk about 2020 almost as a year where we saw barriers form between country and country, people becoming more inwardly focused rather than more global. Does that worry you in the longer term, or do you really feel the way the niche your technology is driving, that we are just becoming ever more globalized and certainly that's what's being asked of you?

- Well, that is an interesting question. Certainly, there was a lot of talk these days particularly about decoupling with China. I don't think that will have a big impact on capital markets because they haven't been as big a presence in that. I think really the questions here will be around what happens in the Western world, with the US, with Brexit, with the EU, and can those really continue to integrate. Really, as you know the trend the past 10 years has been an integration trend with all the new regulation in the EU that has brought those markets much more closer together. There's some very important regulation that has occurred in the past few years to increase shareholder rights, the shareholder rights directive. And so, right now, I'd say the main momentum is still probably flowing in the direction, leftover momentum of integration from things that have happened in the past. And we'll just see, I think, what happens in this election will make a big difference and we'll see what happens in the next 18 months.

- Tom, your perspective of how technology has helped UBS become a more global player. You said as head of Americas, UBS of course, headquartered over in Switzerland, making big inroads and into Asia as well. How has technology been a force for combining and for becoming a stronger global entity?

- Well, certainly from the first way that technology has been critically important to us in this crisis has been... All the work that we put in over years on developing virtual desktopping prepared us, which originally the work we were doing was how can we create a more flexible environment for our workforce? But the numbers that we were thinking about were a fraction of what we saw during the crisis. So shifting from 5% work from home to 95% work from home and the ability to do that seamlessly clearly was one big advantage and something that by thinking about moving to the cloud and all the other changes that we made in terms of our infrastructure, clearly played off. As we think about this going forward in the global nature, I'm gonna come back to the content and the ability to deliver for our clients. If I think in our wealth management business, where we have a global CIO team that services our client base and our 2.6 trillion in assets that we manage around the globe. Well, clients are waking up in the morning in Asia, and then watching what happens in Europe and then taking a look at what's happening in North America, having a team of people who can be seamlessly connected with our advisors and clients, and able to deliver content in real time. The pop-up live streaming that we've been doing for market events, for events related to COVID, for events related, hopefully going forward on vaccine development. That delivery of content actually is moving us in a way a bit more like your industry, in terms of media, in terms of what we need to do for clients. So I think tremendous change is happening in the industry and clearly bringing technology and financial services closer together is what is gonna help us to be able to deliver more capably on a global basis, global content, but delivered locally and delivered personally.

- We've got just a few minutes left. So if there are any more questions from the audience, please do send them in, because I'm sure there's several for Tim and Tom here. But Tim, you're a man who clearly looks round corners for us. You're a man who's already bringing digital ledgers to bear within finance. You're already helping bond trading with LTX. Look on the next corner for us, if you can. I mean, you're already saying two to five years out, there's been an acceleration and adoption of the technology that you've already created. Where excites you for what's currently being RND'd on at the moment?

- Well, I think I'll just do near term and longterm. Near term, I think the impact of cloud is profound. And I'm not sure if that's looking around the corner anymore, but it's much more than an infrastructure play. It's about modernization. It's about a whole core suite of software based on microservices, DevOps, with continuous deployment, improved security and moving there is a huge task, because how often deep acting is required. But it's gone from clients asking for no cloud to cloud ready to only cloud. And this can be an area where we're leveraging the modern SaaS service can take some of that work away. And we look at the big technology stake that larger organizations have to modernize. You know, SaaS offerings can be an on-ramp for parts of that and simplify that task. So that's sort of on the near term. I think out a little bit further, I think that AI will have tremendous impact. I think that every application will have AI embedded as a key enabler and to be ready for that, firms need clean, complete and open data. And I think in some sense, that's where folks should focus today in order to be ready for tomorrow. And I think the next panel, we're talking about applying AI will be a great example of that.

- Yeah. I love it. You're doing my job for me. Teasing ahead, Tim. We have got a couple of questions just coming in. So I'll point them towards Tom's direction saying, asking what what new strategies is UBS using to improve advisor adoption of the technology as it develops? Have you had any reticence at all or have they taken it with open arms?

- So what we're looking at, and this has been a significant focus of what Tim and I and the team have been focused on in terms of the development of the wealth management of America's platform and the utility. It has been, how do we get adoption? And we're working with adult learning experts on how do we make relevant education? And I think probably the coolest thing we're doing is what we're calling the development of the sandbox, which is the pre-live version of the technology. So our advisors, our client service associates and our other team members are gonna be able to play around and not in the real world, be able to make mistakes, but you learn from making those mistakes. So I think this, the focus on how you utilize learning and a fun way to learn is gonna be critical to the technology adoption.

- And last one for you, Tim, what do you wanna leave with the audience right now in terms of next steps? Are you inherently an optimist about where 2020, where 2021 go?

- I am an optimist, because as Tom said, this has been such an acceleration of trends that were already there. It's that notion of five years of progress in five months. And so I think it is making these investments in technology and in innovation even more relevant. As I said before, the increases in demand that we're seeing are high. And so I think what we're seeing too is, is real separation happening in the economy overall with winners and losers being rewarded and punished. And so I do think it's the time to invest, not so much for the next 12 months but for the time after that. We're certainly investing ourselves and also investing to assist our clients to be really on the right side of that accelerating curve.

- Yes, it is. I'm sure. Tim Gokey, great to have some time with you. Of course, CEO of Broadridge. And of course, Tom Naratil, wonderful to have some time with you, of course. Head of UBS Americas. Head of the wealth management unit. We thank you very much indeed. And we're now gonna be turning our attention to my colleague, Larry Tabb. He's gonna be taking it from Bloomberg Intelligence and you stay with us. We're gonna be having a fascinating discussion about technology and market liquidity. Take a listen.

- Hey, thanks for joining us. I'm Larry Tabb. I am head of Market Structure Research at Bloomberg Intelligence, and we've got a really interesting discussion going on today that really the the major topic is a next generation of tech in practice. And technology, of course, has really been dramatically changed the way investors and dealers trade, as well as how exchanges and folks access the marketplace and match buyers and sellers together. We've seen trading protocols, connectivity and technology completely really rewrite equity and derivatives markets and how they operate. And to that point, it's almost impossible for any equity or options trade to be traded, to be really matched by hand anymore. Everything needs to go through machines. That said, the fixed income world's been pretty different while sovereign debt markets have become somewhat automated. Once you get outside benchmark government securities. more than 60% of orders are still matched by phone, but that's changing. And to discuss how technology is changing the face of corporate bond markets, we have a great panel of experts. With me to discuss this is my friend and colleague, on the FIMSAC, the fixed income market structure committee of the SEC, Horace Carter. And Horace is the EVP and head of Fixed Income Capital Markets at Raymond James. Another long time friend is Jim Toffey. Jim was the ex-founder of Tradeweb, and he's now the president of LTX. And last of course, and certainly not least, Nadine Chakar, EVP, head of State Street Global Markets at State Street. So let's get this discussion started with Horace. You're head of fixed income for Raymond James and help with the daily execution of thousands of corporate bond trades across the vast array of financial advisors. What do you see as some of the challenges in today's market, Horace?

- Thank you, Larry. To do with what I think of as wasted energy. And a lot of it has to do with visibility into the market for especially our advisors. Visibility in terms of valuation. So by way of example, we have a client that wants to liquidate bonds. What they will do is they will put all of their bonds out for the bid. As bonds go into the market, they've received bids back and then the advisor and the client selects on the sell. So we have a conversion rate... Of inquiry that is actually traded. So we're spending a lot of time and a lot of resources on price discovery. That actually increases. In March, for example, the number of inquiries that we had approximately tripled and the conversion rate dropped to about 20%. So that's one of the big challenges. Other than the obvious challenge of having difficulty finding attractive yields for our investors right now.

- So basically, there's a lot of manual work, a lot of data that needs to be aggregated from a lot of different places and really just a lot of legwork and running around trying to get, find the best prices for your clients, I guess. That kind of sum it up?

- It does, but it's improving rapidly, because say 10 years ago, it was far more manual. And in addition, on the offered side, we're getting tools that help us sort of sift through offerings to find a real value for our client. There are thousands of bonds offered at any given moment, and we have to use these tools in order to find the bonds that our clients want. But also we need to be able to determine whether or not they're offered at an appropriate price. And so the tools that we have are good and they're getting better.

- Let's transition this to Nadine. Nadine, you're at State Street. You're one of the largest global custodians. You deal with mostly side of the business. How has it, and as well as you kind of represent Charles River as well. A lot that interacts with... You interact with Charles River, the order management platform that State Street bought about two, three years ago. How is the institutional side of this market? Do you have a good view on that? Is that similar to Horace with a lot of sneakernet and running around on the fixed income side?

- It is, Larry. I think the buy-side is struggling, if you will, to streamline its automation in trying to leverage more algos in this space. So what we're seeing is still a lot of buy-side firms still operating on legacy infrastructure. And if you think through what Horace said, the ability to aggregate data, map it, reconciling it, then do your modeling and trade, requires robust data strategies, and computing power, that not all firms have. And then if you add to that, the challenge of the lack of interoperability, the fragmentation of liquidity, non-centralized solutions, we're still not seeing... A lot of the ETS is trying to aggregate liquidity and help clients. So for the buy-side, we do need to figure out an easier... We need to make it easier for them to jump in with both ends. It's not lost on us that we're seeing a proliferation of electronic trading venues but yet still a very low percentage of bond trading done electronically. So we continue to see those same challenges.

- Well, let's bring Jim in here. Jim, you're kind of the grandfather of electronic fixed income trading. You founded Tradeweb, what? Almost 25 years ago. Shouldn't have this problem been fixed? Where are we and how are we moving forward? And I guess you're now with LTX. How is that looking to change kind of this process?

- Well, thanks Larry, for reminding me how old I am. The space has changed a lot in the last 20 years. I mean, RFQ, which powers both Tradeweb and market access was an important protocol, and really kind of took like the bond markets forward. But really, if you look at RFQ, it's really a protocol designed to electronify the phone call from before. And even though RFQ is very widely used, when you look at aggregate numbers like in the corporate bond market, over 70% of the market is still done, not electronically but over the phone or over IM or something like that. So there's still a long ways to go. And I think what you're gonna see here over the next several years is an advancement on two levels. One using AI and machine learning to make people smarter around the data of, for example, when is the right time to trade? Where's the most liquidity? Who are the natural buyers and sellers that should be invited to that trade? So I think there's gonna be a lot of emphasis on using data to help both the buy-side and the sell-side trade smarter. And then on the trading protocol side, I think you're about to see, and this is one of the things we're working at, LTX at Broadridge, which is the next level, the next generation or protocols that will go beyond RFQ, that will aggregate liquidity, that will create better price improvement in kind of the old RFQ model. So I think between these two trends in convergence, I think we're about to see a real step function change. And honestly, over the next three to four years, it wouldn't surprise me if the amount of trading done electronically across the fixed income markets finally gets up to 50% or higher from kind of the 20 to 30% that we are today.

- So you're talking... You brought up the idea of protocol and how folks actually interact with these platforms and how dealers and clients interact. Horace, what types of protocols, the traditional RFQ protocol is kind of clients put in a request to trade and the dealers kind of respond. Horace, are you seeing those protocols change? Are you guys embracing new protocols? How do you kind of interact with these protocols and how would you guys like to see them altered a bit?

- Well, we do, RFQ is obviously still the dominant protocol and we do a good bit of that, but we are looking at different protocols. Not to butter up Jim, but the LTX protocol is... It has the unique feature of being both dealer centric while simultaneously increasing transparency and competition. So, that's a new one, but in particular, what we've observed is the growth of the all to all or open trading. Obviously, as a dealer, we would be interested in that phenomenon. It's been steadily growing over time. And I would point out that in March, open trading grew very rapidly. And I think that the reason is, that people were trading execution quality for execution speed, because on an open platform, you get your RFQ in front of a very large number of potential counterparties very quickly. So you tend to get prices back more quickly as compared to a negotiated price where the execution might be better, but it takes a longer period of time. So that's a phenomenon, but I think we're going to continue to see increase.

- So, RFQ, as Horace said, kind of puts the dealers in competition. You mentioned something about LTX not putting the dealers in the competition. How does that kind of work?

- Well, as I said, it's dealer-centric, but it actually increases competition. Increases competition and transparency. So you need-

- Okay. Some of these challenges in terms of migrating the platforms forward have a lot to do with liquidity, and there's kind of a chicken and egg issue with liquidity, especially in fixed income. Things trade fairly frequently. Once they're issued they kind of go into the vault and kind of stay there. I don't turn over my portfolio because I don't necessarily see great prices or great, great prices when I trade. So I keep them in the vault, but because they're in the vault, there's not as much liquidity and competition to kind of get them in the circulation. How do you see this changing, Jim? Do you see this chicken and egg problem being solved? Or how do we solve this chicken and egg problem to drive more liquidity, create greater transparency?

- Well, Larry, you're bringing up a great point. Number one is, as we've discussed, the overall penetration of electronic trading in the markets is still relatively low compared to other asset classes. And then when you look at the record-breaking issuance of corporate debt this year, and then look at secondary trading, the gap is actually widening between new issuance and secondary trading. So in some regards, you could actually say the markets, the secondary trading hasn't kept up with the new issuance. I do think that, for example, back to the theme of data and using technology, one reason people think about buying and selling is the probability of success. Will there be enough liquidity for the bonds I'm trying to sell at the price I'm trying to get it done at, for the amount? And there are ways to quantify that probability going forward. In talking to the buy-side over the last few years, we found that over 50% of the time, what the buy-side is actually trying to get done doesn't even turn into an order when they talk to their dealers. In other words, over half the time when they talk to the dealers and explain what they're trying to do with our market access or directly with dealers, there's just not enough interest, demand and liquidity. So one of the opportunities is how do we assess that liquidity before you trade? And we're using innovative liquidity scores with a quantitative analysis to help the buy-side assess that probability before they trade. Second thing, and in the OTC markets, there's always a balance between transparency and information leakage. And how do you encourage more liquidity, more transparency, but don't give away information leakage to the rest of the market that wasn't really interested in providing, and they got information for free. So you wanna look for innovative solutions that gives price transparency to buyers. I mean, often, one of the other things we've heard in electronic trading is RFQ is fine, but it doesn't tell me that I could, if I just bid a little bit more I could have won all the bonds. So I'm really bidding blind, I see nothing in return. And so there's not the ability to have another wave of price improvement because I can't see those prices and react accordingly like I can in equities, like I can in foreign exchange, where it's a very dynamic price discovery. So I think that's also an opportunity to provide that kind of price discovery to the market, which back to your original question will lead to more certainty, more certainty leads to more liquidity. More liquidity leads to better price discovery. And then you get this virtual circle breaking that chicken and the egg that you were describing.

- So, to reinforce this, so you're providing some... You're trying to create some sort of score that says that my bonds will be very liquid, moderately liquid, less liquid, so that I can have more confidence when I go to the market that the things I wanna sell can actually be marketable?

- Yeah. And again, in the traditional world of Charles River and OMSs and EMSs, and then in the marketplaces, there's always been the pre-trade happens on those screens. And then the execution happens on marketplace just like ours. What I think is you'll see tighter integration over time using these liquidity scores as a bridge. So for example, we're talking to Charles River about putting our liquidity scores embedded in the workflow to help all those customers understand on a pre-trade basis, what's the probability of success. And as you know, Larry, when you study data, the results you get is only as good as the data that goes into those equations. And the best data to have, really, if you think about it is all the data of the corporate bond market, you think trades and what's traded in the past, what people would like to trade now. Sharing anonymously what they're thinking about trading so that they can get better clarity on what's the probability that if I go to sell this illiquid bond now, there's actually buyers on the other side. And then obviously the final piece is the feedback loop from the marketplaces feeding back in. So I think you'll see an integrated title work cycle between pre-trade and trade as platforms like ours work tighter with OMS and EMS platforms going forward.

- Well, let's bring Nadine into the stadium. You guys are highly integrated or the CRD, you're highly tied to the buy-side. How do these new protocols and how are these new technologies kind of work through, I guess, CRD and to the buy-side to kind of get them more comfortable and get them better liquidity.

- Larry, I'm gonna have to sort of try to carry on on the themes that Jim raised. And if you think through our entire strategy of Alpha, which is really powered by Charles River was really to connect front to back the pre-trade, trade and post-trade environment for our clients. And starting with the EMS, for example, Charles River spent an incredible amount of time, I think over 10 years, rebuilding, well, building from scratch actually, the fixed income component of that. And we've spent a fair amount of time building the fixed income inventory, trade automation and most importantly, strengthened the open architecture by enhancing third party data providers' venues and application vendors. So really try to create one ecosystem where we can bring them all together. And while we've been connected to venues like Trumid and Tradeweb and market access and 30 others for years and years right now, I think what you're seeing is a shift and signaled by our partnership with LTX. Which we're really excited about that, because we we do believe that that's gonna bring more added value to our buy-side clients by providing them with better access to fixed income dealers, which is the theme that Horace had raised earlier. A more efficient trade workflow, and some of the AI tools. That's really important to be able to mine a lot of that data to provide better liquidity, better transparency. And throughout the whole process the pre-trade, trade and post-trade environment, which is critical. And then we've added, if you will, an extra layer to that to which we call a clear connect, which was really to add more simplicity to describe the complex process. And that's just another attempt for us to try to help clients with that post-trade process. But most importantly, giving them access to better data, better liquidity, and allow them to connect with any venue and any provider. But the LTX component of what we're doing sort of elevate the work that we have been doing on our own for these years. And it just gives the buy-side a much better experience, which hopefully would lead to a lot more usage of electronic trading. I mean, we're seeing an increased usage in algo trading, but it's hard to do when you don't have the infrastructure, the data to be able to execute in that environment.

- That's interesting. So you're seeing increased use of electronic tools and algorithms and fixed income data. Let's bring this to Jim. Do you at any point in time kind of see the fixed income markets becoming more like the equity markets and exchange traded derivatives markets becoming more electronic and more algorithmic? What do we need to do to get there? And are we gonna get there? Or will it just be different?

- I mean, think it will be structurally different, because the fixed income markets are OTC based. They're based on dealers. I think the key is actually instead of putting dealers in comm, is more about helping the dealers do more with their own network. Raymond James, for example, has a massive network of 800 or 900 institutional clients. Every fixed income dealer has a massive network. The key, I think, is using technology to harness that dealer with the liquidity of their entire customer base to aggregate liquidity. So what does aggregate liquidity mean? In an RFQ, if you think about it today, and Horace mentioned all to all trading, it's great that it goes out to a wide open marketplace of users, but at the end of the day, you're getting liquidity just from one buyer. So if you're trying to sell a block of bonds, you're still getting liquidity just from one, even though you reached an audience of 25, 50, 75 buy-side customers. In equities as you know, and other markets, they go out to the same universe, but they aggregate liquidity. They take five from one person, 10 from another and they use BestX to create not only aggregating liquidity across multiple customers, but also price discovery. So if I realize I need to pay a little bit more to buy the bonds I want, I can. And I think those dynamics have been missing in fixed income. And I think as those dynamics start to appear through our protocol and others, the fixed income markets will go to another level of liquidity, and again, get close to the kind of what you experience in more liquid asset classes.

- Interesting. Horace, how do you see electronic execution kind of carrying out through Raymond James and through other dealers?

- Well, I do agree with Jim. I think that the electronification is going to continue. I think that algorithmic trading is going to become more and more a part of the business. I think that in 20 years, you will see fewer human bond traders and more computer bond traders. And I would liken it to... Imagine the manufacturing industry going forward without robotics. There's a certain amount of inevitability to it, but I don't think it's going to get to the level or to mirror the structure of the equity market, because as Jim pointed out, it's an OTC market, whereas equities is more order matching. You get a match order book. That is not the way fixed income securities play. So the long and short of it is that they will... Ways for market makers in the fixed income business. And there will always be a role for these pools of capital. We have to work much smarter now using the type of AI that Jim and Nadine have described in order to service our clients better, because we don't have the massive pools of capital that we used to. So the dealer inventories are less than 10% of what they were in April of 2013, for investment trade, corporate bonds. That means that liquidity is done through... Liquidity is obtained through distribution rather than balance sheet.

- Well, we're getting towards the end of our discussion. So let's end up with Nadine. Since the order management platform, and certainly CRD is one of the biggest connectivity providers to the buy-side, how do you see the buy-side fitting in? Certainly, with retail and financial consultants and advisors, it's a little easier to kinda aggregate small pieces, but if you're trying to buy big blocks, how do you see this fitting in to the buy-side?

- I think, Larry, the buy-side doesn't really have a choice but to jump on the bandwagon of automation and aggregation. And it's mainly because of the pressure on the business models. We're seeing margin compressing, obviously MiFID is pushing towards best execution. So there's definitely a big push on trying to figure out more efficiency, the ability of trying to find efficiency and automation and scalability, which are gonna be key to that process. So we will continue in our partnerships with LTX, and Jim and others to continue to find ways to help our clients with sourcing that liquidity and most importantly trying to help them get access to the right data and the right protocols for them to execute efficiently. That's our entire business model here to really help the buy-side move forward on that front.

- Well, thanks, Nadine. Well, it's certainly an interesting time with that. I think our time has come to a close. I wanna thank Nadine Chakar, EVP, head of State Street global markets. Jim Toffey, the president of LTX, and of course, Horace Carter, the EVP and head of fixed income capital markets at Raymond James. And I wanna thank everybody for joining us and for a very interesting discussion on really, the future of fixed income technology and trading. So thanks very much. And I thought it was a very good discussion. Thank you so much to our panelists and all our speakers today. Thanks for our sponsor, Broadridge. Be sure to check out their survey under the handouts tab in the Q&A box. And special thanks for all you guys for tuning in. We look forward to seeing you at the next one. And I'm Larry Tabb, head of Market Structure Research for Bloomberg, and we'll see you soon.